Trade Wizards Of The East – VII



Read the previous section of this series here

Calcutta as the Dominant Financial Centre

In spite of the voluble and justified allegations against the imperial British regime of its rapacious plunder of India’s resources, their contributions in nurturing Calcutta and in turn the Bengal Presidency as a beneficiary of their mercantile assets cannot be denied.

In contrast to Mumbai (then Bombay), a western sea port aptly christened by the Portuguese as the ‘good bay’, Calcutta being a river port of the East some 80 miles away from the sea, enjoyed a status of the second most important city of the British Empire. Simply for the fact that the East India Company had taken a fancy to it and nourished it as its own.

Today, given the string of corporate boardroom debacles of innumerable chit funds like Saradha, Rose valley[1], Prayag and busting of several other ponzi schemes, and the running aground of a juggernaut like the Sahara Group, coupled with stories of militant trade unionism of the protracted left regime, and abandonment of the Nano factory at Singur by Tata owing to armed resistance of the locals against erstwhile administration for land procurement at Nandigram, it seems incredulous that Calcutta once not only rivalled Bombay as the commercial capital of India, but until the early 20th century even dominated the financial scenario. Even the volume of trade was much higher in Calcutta than Bombay between 1870 till 1939. Accordingly, the East India Company decided to establish a joint stock banking in their prized colony in 1806 in Calcutta, and it was only 34 years later in 1840 that they established their first bank in Bombay.

 

The gap in export and import volumes reflected in the concentration of capital and finance in form of availability of credit and banking sector as well. Not only that the government deposits in banks too were much higher in Bengal Presidency as compared to other two, as can be seen from concentration of capital and finance in the form of availability of credit in the Banking sector. With Bengal catering to a much larger area compared to Bombay it attracted more deposits in banks as well making them more prosperous. The Bank of Bengal is the present day precursor to State Bank of India supposedly ‘a banker to every Indian’ which still remains the largest PSU bank of India thanks to the head start it received.

 

 

With easily available finances the number of companies floated in Calcutta was much higher than that of Bombay. 45 to 51% of companies were floated in Calcutta whereas Bombay had a share of 13 to 15%. By 1918 though both cities had comparable share in rupee companies with Calcutta controlling 43% as compared to 40% by Bombay the former showed a dominance in control of sterling based companies to the tune of being 73% for Calcutta as compared to 19% for Bombay. This was specifically for

the concentration of the tea industry in the eastern part of the country. However the per capita deposit was always higher in bank of Bombay to an average of four times with respect to Bank of Bengal implying a greater individual prosperity of the citizens in the Bombay presidency.

Even the companies of Bombay had a higher paid up capital than Calcutta.

 

It was only subsequent to the Second World War that Calcutta started losing out its mercantile share to Bombay, evident in its steadily declining share in the clearing data of the banks. With the Second World War the river port of Calcutta was virtually closed. Bombay being a sea port on the western side was much better equipped to handle the bulk of European trade. Its proximity to Suez Canal and better connectivity by railways to not only Deccan but also Punjab ensured it got an advantage over Karachi as a favoured sea port, though Karachi too was an upcoming competitor for its strategic location. Being a home to three markets: namely, the stock exchange, bullion and cotton, as compared to only Jute in Calcutta which was primarily exported and its stock exchange not that prolific, Bombay offered better options to the business houses to cover their losses and earn from variety of sources.

Bombay also provided better devices of shock absorption in the event of business failures to channel money into a variety of ventures which was not an option for businessmen of Calcutta. The indigenous bankers of Bombay converted their finances into formal banking thereby safeguarding against banking failures much better than the East. In the period 1915-65, out of the 1500 banking failures, 360 happened in Bengal but only 126 in Bombay. The closure intensified post-independence with 168 closures in West Bengal (with the partition of the state) while only 13 banks were closed in Bombay. With the shifting of the Central Bank of India in 1937 to Bombay, which was founded in 1935 with a joint headquarter in both the commercial centres in India, it veritably sealed the fate of Calcutta becoming successively the less favoured option to Bombay in terms of financial credibility, thenceforth reinforcing the position of Bombay as the commercial capital of India.

Cover Picture: The Bank of Bengal, estd. 1806 (Source: SBI Archive)

 

Author: Tanuka Banerjee

Published: Aug 25, 2018

 

Author acknowledgement: (This article contains excerpts from an earlier piece: ‘When Bombay overtook Calcutta: A history of India’s financial geography’, adapted for our series mapping the history of entrepreneurship in Bengal.)

 

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[1] A major financial scam and alleged political scandal in India caused by the collapse of a Ponzi scheme run by Rose Valley Group.